Fire Phone Hits the Sweet Spot for Hardware Costs, but Will It Pay Off?

Published on: 30th Jul 2014

Note -- this news article is more than a year old.

From a hardware perspective, the Fire Phone carries a bill of materials (BOM) low enough to allow Amazon to cut a profit for each smartphone sold. But with Amazon likely having sunk large amounts of money into developing the Fire Phone's unique features, the company must sell large volumes to recoup its investment.

The BOM of the Amazon Fire Phone equipped with 32 gigabytes of NAND flash
memory amounts to $201, according to a preliminary estimate by the Teardown
Mobile Handsets Intelligence Service at IHS Technology.

The cost of production rises to $205 when the $4 manufacturing expense is
added.

Given an unsubsidized retail pricing of $650, this means the Fire Phone has
hit the appropriate price point to compete profitably on a per-unit basis with
other manufacturers selling smartphones for similar prices. However, the BOM as
well as manufacturing cost do not account for the research and development
(R&D) expenses, which will have a major impact on the profitability equation
for Amazon.

"The features that differentiate the Amazon Fire Phone -- particularly its
unique Dynamic Perspective interface -- required the development of specialized
hardware and software," said Andrew Rassweiler, senior director, cost
benchmarking services for IHS. "This kind of R&D effort is expensive and
can only be paid off through major sales success. In a highly competitive
smartphone space dominated by Samsung and Apple, Amazon will face the
considerable challenge of selling enough Fire Phones to make its R&D effort
worthwhile."

The launch price also sets the Fire Phone in direct competition with the
established flagship smartphones of Apple and Samsung, which are the market
leaders, noted Ian Fogg, senior director for mobile media at IHS. "This is a
high-risk launch-price strategy which is unsustainable for a smartphone market
entrant like Amazon," said Fogg. "Simply having a well-known brand on the
box is not enough to sell smartphones, as Nokia and Motorola know well."

Friendly Fire

Amazon is marketing the Fire Phone's user-friendly Dynamic Perspective
interface as the smartphone's main feature. Dynamic Perspective allows
one-handed access to menus and shortcuts simply by tilting or swiveling the
phone, or peeking at the display.

To make the Dynamic Perspective technology work, the Fire uses hardware not
found in any other smartphone: four camera-like sensors that coordinate their
activities with the applications processor. The sensors are placed in each of
the Fire's corners, detecting the user's perspective relative to the
display. The IHS Teardown Service revealed these devices to be monochrome
sensors with a resolution of 400 by 400 pixels.

There are also four infrared (IR) light emitters, one in each corner of the
front bezel. "These emitters may project more than just a blanket of infrared
light," said Rassweiler. "These IR emitters may broadcast an array of light
'points,' which are then 'seen' by the cameras, providing the camera
with a 'map' of its surroundings. Though we are not sure at the moment, it
is assumed that the Amazon Fire phone sensors work in a similar manner to the
technology used in Microsoft's Xbox Kinect."

For their part, the sensor cameras feature specialized image sensors from
OmniVision Technology Inc. While IHS is still in the process of confirming the
exact part name, it's likely OmniVision's OV6211, a shutter sensor used for
computer vision applications.

Qualcomm keeps the Fire burning

Chips from Qualcomm Inc. account for the majority of the Fire Phone's
functionality, with the semiconductor supplier contributing the core processor,
along with the radio frequency (RF) and power amplifier (PA) sections of the
design.

At the core of the device is the MSM8974 applications processor and wireless
baseband chip from Qualcomm. The Teardown Analysis service has seen several
variants of the MSM8974 in more than 10 teardowns of other phones and tablets
examined in 2014, including the Samsung Galaxy S5, the Nokia Lumia 1520 and the
ZTE Grand S II.

The Amazon Fire Phone also features Qualcomm's full RF 360 suite of
integrated circuits (IC). While IHS previously has analyzed wireless products
that contain a few chips from the suite, it never before has seen the full
Qualcomm solution in a single smartphone or tablet. The suite consists of the
QFE1100 envelope tracker, the QFE1520 and QFE1550 antenna-matching tuners and
the QFE23xx series of transmit modules.

The RF360 suite of ICs is designed for wide global LTE deployments, reducing
handset design SKUs and time to market.

Qualcomm also contributes the WCN3680 chip, which delivers support for the
802.11ac advanced Wi-Fi specification. The technology is expected to support
data speeds of at least 1 gigabit per second.

Just the right touch

The display/touch-screen subsystem of the Amazon Fire Phone is conventional
for midlevel smartphones. The 4.7-inch, 1,280 by 720p-resolution display falls
short of the 1,080p full high-definition screens used in high-end models. Japan
Display is the supplier of the subsystem.

The use of a less-than-cutting-edge display allows Amazon to keep the Fire
Phone's BOM costs down -- and to keep its hardware margins up.

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